Securities fraud case against city of Miami now in jurors’ hands

The city of Miami and the federal government have spent seven years fighting over whether Miami officials played a shell game with their finances in the late 2000s in order to hide a financial crisis and defraud bond investors.

The truth is now in the hands of nine jurors.

Concluding a two-week civil trial, attorneys for the Securities and Exchange Commission, the city and former budget director Michael Boudreaux made their closing arguments late Tuesday in a long-awaited securities fraud trial. Jurors, who must mull decisions made nearly a decade ago, will begin deliberating Wednesday morning.

“We’re asking you to tell them that they’re accountable for their actions,” SEC attorney Amie Riggle Berlin told jurors, while repeatedly accusing the city of lying in court.

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The SEC has been investigating the city since 2009, when the Miami Herald highlighted a series of questionable financial transfers as Miami’s budget imploded. Financial regulators contended in charges filed in 2013 that the city raided $37.5 million from capital projects and restricted accounts over two years in order to pad its reserves, make the city appear financially sound and secure lower interest rates on three 2009 bond offerings. Boudreaux, who recommended the transfers and represented that the money was unused, was called the architect of the alleged scheme.

We’re asking you to tell them that they’re accountable for their actions

Amie Riggle Berlin, SEC attorney

Most of the transferred money was ultimately returned to its source by Miami’s new administration in 2010 after it was discovered that some of the defunded capital projects had continued to spend millions of dollars, exacerbating Miami’s problems and contributing to a financial meltdown. The SEC contends that after city officials learned of the problem they hid the issue from ratings agencies and bond investors in 2009.

They also said Boudreaux knew the transferred money was still needed when he recommended the transfers, but in a bid to save his job lied and manipulated his bosses, including former City Manager Pete Hernandez and CFO Larry Spring.

“I found out from Larry Spring that spending was still going on in some projects. What I told Mr. Spring at the time was that it could not be true,” Hernandez testified during the trial. “If we had known that those projects continued to spend, we never would have recommended” the transfers.

Have there been mistakes? Absolutely. Mistakes are not a badge of fraud

They told jurors Tuesday that all the transfers were above board, vetted by external auditors and fully disclosed to potential investors and ratings agencies like Moody’s. Boudreaux’s attorneys said the money he recommended be transferred was indeed unused at the time he made his suggestions, but his peers bungled the documentation of the transfers in a new accounting system and caused the continued spending of defunded projects. One mistake actually caused the city to mistakenly spend money from a state loan, attorneys revealed during the trial.

“Have there been mistakes? Absolutely,” said Boudreaux’s attorney, Ben Kuehne. “Mistakes are not a badge of fraud.”

Scott Cole, a private attorney representing the city, said Miami officials were all trying to support the city at a difficult time. Though the SEC highlighted concerns and emails from some high-ranking employees that the transfers were masking losses, Cole said the debate actually reinforced the city’s intent to do the right thing. He also said that, despite the misgivings of some, everyone agreed while making the transfers that they were legal.

If you are engaging in a scheme to defraud do you put your scheme in writing?

defense attorney Scott Cole

Cole also said the SEC’s enormous cache of documents was all created by the city in an effort to transparently document all financial decisions. He accused the agency of pursuing a contrived conspiracy theory that, were it true, would inconceivably involve a whopping 18 city officials and two city administrations, including former Mayor Manny Diaz and current Mayor Tomas Regalado.

“If you are engaging in a scheme to defraud … do you put your scheme in writing?” he rhetorically asked jurors. “Don’t we want our city officials to debate these things and make sure they’re doing the right thing?”

The SEC is asking the court to impose an injunction barring the city — the only municipality ever charged twice by the SEC — from violating a 2003 cease-and-desist order. They are also seeking undetermined financial penalties.